DRAFT

Finance Seminar

Thursday, May 12, 2022
4:00pm to 5:00pm
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Baxter B125
The Impact of ETF Index Inclusion on Stock Prices
John Duffy, Professor of Economics, UC Irvine,

Abstract:  A growing body of literature suggests that when assets are included in an index they trade at a premium. In this paper, we look for evidence of such premium in the laboratory by comparing an environment where the ETF index covers all assets against an environment where an asset is excluded from the index. We find that: (i) inclusion of an asset in the ETF index results in a substantial index premium, (ii) this result is tied to emerging order imbalances, and (iii) the premium and order imbalance persist even if short-selling is allowed.

Written with Dan Friedman, Jean Paul Rabanal, and Olga A. Rud

For more information, please contact Sabrina Hameister by phone at 626-395-4228 or by email at sabrina@hss.caltech.edu.